All casino games include a degree of risk, and the same can be said of stock trading. But is this all that real money casino games and stock trading have in common?
Find out as we unpack the similarities and differences between online casino games, such as jackpot slots and financial trading.
All Eyes on Wall Street
In early 2021, you more than likely saw media coverage of an interesting situation that unfolded on Wall Street. Independent informal traders – members of the WallStreetBets subreddit (a community forum on Reddit where participants discuss stock and options trading) – were snatching up GameStop stock. This story caused such a stir in the financial markets that it became headline news.
Naturally, this drew people’s attention to financial trading, but many still believe that buying and selling stock on Wall Street is little more than a form of gambling and that it is, in fact, very much a case of stock market gambling. So, is investing in the stock market gambling?
Let’s take a closer look to see if this is true.
What is Stock Trading?
Stock trading is a type of investing that involves buying and selling shares in companies on the stock market. There are different types of trades when it comes to “gambling” on the stock market:
- Scalping: When a trader attempts to make very quick trades to take advantage of small fluctuations in price. These traders aim to make a profit by making as many trades as possible in a single day.
- Day trading: Day trading is similar to scalping in the sense that both refer to quick trades with the aim of making profits off of price fluctuations. The difference is simply between the number of trades. The timeframe for day trading is bigger and can range from a 15-minute to an 1-4-hour trade window.
- Momentum trading: A trader may attempt to make money by purchasing a large amount of stock they believe will significantly increase or decrease in value.
- Swing trading: Traders looking to make short-term gains over a few days may be interested in swing trades. In this case, traders seek to make short- to medium-term gains in a stock over a period ranging from a few days to several weeks.
- Position trading: Unlike the previous trades, this type of trade is based on very long-term changes in the value of the stock, typically over a period of weeks or months.
What Is Gambling?
Gambling refers to wagering money – or another item – on a game, with the aim of making a profit or some other sort of gain. Typical examples include playing casino games, such as casino table games, for money. But this definition also applies to more than just playing at real online casinos. Any informal game involving cash bets also falls under this definition, even if it’s just a private poker game among friends or people betting on dice in a streetside game.
However, it’s important to note that some definitions, such as the one provided by Encyclopedia Britannica, include not just “games” in their definition of gambling but also “contests and uncertain events.” Including “uncertain events” suggests an association of gambling with certain elements of investing and financial trading.
But What Are the Similarities and Differences?
In short, many external factors can influence whether you win or lose in investing, while this is not the case in legitimate gambling. Let’s look at this in more detail.
The Similarities Between Gambling and Financial Trading
- The gambler and trader both aim to make a profit, but there’s no guarantee of a return. Both in the casino and on the stock market, players and traders are taking a gamble. Regardless of whether the gambler or investor “wins or loses,” both aim to see a return on their spend.
- Both involve the calculation of risk. Trading and gambling are about assessing the risk involved and deciding if you want to “play” – even if the overall risk is generally higher in gambling.
The Differences Between Gambling and Financial Trading
- Gambling outcomes happen much faster. While you may be able to place bets on certain events or games months in advance, whether you win or lose is generally decided within a few minutes or hours. When it comes to all forms of trading except scalping and day trading, you may wait weeks, months, or even years to see the result of your investment.
- Other traders can directly influence the “stock market game.” While market manipulation is illegal, that doesn’t mean other traders aren’t able to influence the stock market. This can be demonstrated by what happened with WallStreetBets and the GameStop stock: Big hedge funds that had been planning to short the stock lost out when lots of informal traders communicating on social media decided to buy up all the GameStop stock they could get hold of.
- By contrast, in many forms of gambling, other players don’t have any direct influence on the game itself. For example, in a game of poker, you can try to read a player or bluff your way to a win. While these two actions can influence the outcome of the game, it doesn’t affect the game itself – you still have certain cards, and those cards won’t change in value or worth. Another way of thinking about this is that when you’re trying to guess what a player is thinking or they are bluffing to influence an opponent’s decision, you’re playing the player, not the game itself.
- In gambling, every individual bet that’s lost is completely lost. In trading, while you may lose a lot of money on a bad trade, it is far less common (but not impossible) that a bad trade will leave you with absolutely nothing. If you lose a bet when you gamble, however, you’ve lost everything you wagered.
- Gambling is always about luck, even in games where skill can affect your odds of winning. In trading, there’s room for analysis to improve your chances of turning a profit. When it comes to gambling, even in games with the lowest house edge, luck plays a much greater role in deciding how your bet will turn out. Consider online slots, for example. It’s all about luck as they work with RNGs (random number generators,) which ensure that the combination of each spin of the reel is completely random.
Investing vs Gambling: It All Comes Down to Risk
While we have no doubt that the debate about the differences and similarities between stock trading and gambling will continue for many years to come, our thoughts are that, on the whole, there are more significant differences than similarities. So, is stock trading gambling?
Even if you have no idea how to play casino games or trade on the stock market, it’s clear that both involve people taking risks to make gains. However, there are many other factors that set the two apart.
For both investing and gambling, you’ll need to manage your risk. This means doing proper research when trading and putting proper risk management strategies into place when you gamble for money. So, while these two practices may be different, responsibility is key to making sure you don’t lose all your hard-earned cash!
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